Global supply chains’ environmental impact – are there rules?

LCL Shipping costs
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Ever-growing consumer demand means ever-expanding global supply chains. Demand, in turn, means an increased need for raw materials, manufactured goods, and ingredients which translates into enhanced environmental damage – such as climate change. While supply chain processes have been hugely impacted by many factors, not excluding the Covid-19 pandemic, reduced inventory levels, and labor shortages, ignoring its ecological footprint and impact threatens all of us. So, what sustainability programs are industry leaders, governments, and environmental organizations implementing to address the problem for the long term?

Issues at hand – supply chain’s environmental impact

Before exploring the measures, let’s examine the problems and their scale. The supply chain’s environmental impact is not just greenhouse gas emissions. It includes environmental and social issues, from toxic waste to water pollution and scarcity, land and energy use, raw materials sourcing, air quality, deforestation, and employees’ working conditions. These factors are all critical considerations in sustainable practices and supply chain management. The climate change issues gained the most attention at the 2015 UN meeting, which initiated the famous Paris Agreement. The agreement established a target to keep the mean global temperature well below 2 °C (3.6 °F) above pre-industrial levels (pre-1750) and, if possible, to limit increases to 1.5 °C (2.7 °F) to reduce the effects of climate change. Furthermore, emissions should reach net zero by the mid-21st century. Net zero means balancing greenhouse gases being produced and released into the atmosphere and those being removed.

According to the Paris Agreement, to remain below 1.5 °C of global warming means cutting emissions by around 50% by 2030. However, in 2016, the World Meteorological Organization’s Greenhouse Gas Bulletin stated that the atmospheric levels of CO2 were at 145% of pre-industrial levels and their highest in the last 800,000 years. Methane levels were also at a record high. The report states that unprecedented climate changes could potentially lead to “severe ecological and economic disruptions.”

Supply chain sustainability

Supply chains are vital to fighting climate change as they generate about 60% of all carbon emissions worldwide. So, to reach net zero, there is an urgent need to improve supply chain efficiency.

Facts of the matter
Before exploring other measures, let’s look at the problem’s scale. According to a McKinsey report:

  • Almost two billion people will become global consumers by 2025, a 75% increase over 2010.
  • For the next 20 years, the consumer sector will grow by 5% annually.
  • To meet climate change agreements, consumer packaged goods (CPG) companies must cut greenhouse gas emissions by over 90% by 2050.
  • More than 90% of environmental damage caused by CPG companies is from the supply chain, including 80% of greenhouse gas emissions.
  • ess than 20% of supply chain managers claim to have visibility into sustainability performance and practices in the supply chain.

Global transport

For these and many more reasons, ecological imbalance, resource waste, and environmental pollution are raising global concerns. As a result, increasing regulations target international trade and supplier relationships to reduce damage and increase efficiency. The supply chain involves many areas; however, the issue of transport and ecological damage is particularly prominent. For example, electric and hydrogen-powered vehicles could reduce carbon emissions regarding last-mile facets of the supply chain. Still, wide-scale global manufacture and adoption are far away.

Also, the damage to the marine environment has come under the trajectory of regulators, associations demanding a green supply chain, and the public. However, there is much the industry can do to mitigate damage. For instance, the EU encourages vessel sharing via the Consortia Block Exemption Regulation (CBER), which aims to reduce environmental impact and increase global trade efficiency. The exemption expires in April 2024, but the European Commission’s DG COMP (Directorate-General (DG) for Competition) is evaluating this.

Supply chain efficiency

The International Chamber of Shipping (ICS), World Shipping Council (WSC), and Asian Shipowners’ Association (ASA) have submitted input to the EC, requesting renewal of the CBER. They have shown the criticality of vessel-sharing as a regulatory tool to promote EU policy and climate goals. Importers or exporters with Less than a Container Load (LCL) can fill up space onboard vessels, thereby reducing emissions. As Yuichi Sonoda, ASA Secretary General, explained, “from an operational and environmental perspective, vessel sharing is like public transport and car-pooling schemes: seeking to maximize efficiency and reduce emissions through the shared use of transport assets and infrastructure, significantly reducing emissions per unit of cargo transported.”

Improving the supply chain

However, this is only one aspect of improving the supply chain, as vessel sharing is only one of the problems or solutions. Another industry watchdog is the UN’s Marine Environment Protection Committee (MEPC). The International Maritime Organization (IMO) created MEPC to ensure that a proactive stance is taken to protect the marine environment and ecosystem. During its 78th session in June 2022, the MEPC reiterated its commitment to strengthening and reviewing the initial IMO strategy to reduce GHG emissions from shipping. They also adopted the Energy Efficiency Existing Ship Index (EEXI) and carbon intensity indicator (CII) as new compulsory requirements to lower shipping’s greenhouse gas emissions. While implementation will come into effect in January 2023, this has met with many discussions about the impact this will have on shippers.

Last thoughts

The issue of the supply chain, greenhouse gas emissions, and others are complex, and work is underway. However, to quote Erik Solheim, UN Environment head, “the numbers don’t lie. We are still emitting far too much, which needs to be reversed. The last few years have seen enormous uptake of renewable energy, but we must now redouble our efforts to ensure these new low-carbon technologies can thrive. We have many solutions already to address this challenge. What we need now is global political will and a new sense of urgency.”

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